CFM46450 - Deemed loan relationships: repos: tax rules: debtor and debtor quasi-repos: further examples: net-paying
Example: debtor repo: income arises on securities during term of repo, no manufactured payment made (바카라 사이트˜net-paying바카라 사이트™ transaction)
(This transaction differs from the example in CFM46440 because the repurchase price is 93, not 103. However payment of that repurchase price extinguishes A바카라 사이트™s financial liability in respect of the advance (Condition E of the debtor repo conditions), so A has a debtor repo in this case.)
- 1/1/09: A (borrower) sells securities to C (lender) for 100.
- 31/5/09: Securities pay income of 10 to C (dividend if equities, interest if debt securities).
- 30/6/09: A repurchases the same or similar securities from C for 93. This includes a finance charge of 3 (in practice the charge would be less than 3 because from 31/5-30/6/09 the advance is 90, not 100).
| A바카라 사이트™s accounting entries, in accordance with GAAP | Â |
|---|---|
| 1/1/09 (receipt of advance): | Dr Cash 100; Cr Financial Liability 100 |
| 1/1/09-30/6/09 (repo 바카라 사이트˜interest바카라 사이트™ accrual): | Dr P&L 3; Cr Financial Liability 3 |
| 31/5/09 (real dividend/ interest paid to C, no manufactured payment received by A) | Dr Financial Liability 10; Cr Dividend/Interest accrual 10 |
| 30/6/09 (repayment of advance) | Dr Financial Liability 93; Cr Cash 93 |
| Net Profit and Loss result: | Credit 10: income on securities |
| Â | Debit 3: 바카라 사이트˜interest바카라 사이트™ |
Tax Treatment of A
A바카라 사이트™s tax treatment is the same as under the 바카라 사이트˜gross-paying바카라 사이트™ transaction (CFM46440), namely:
- A is treated as receiving the real income of 10 on 31/5/09. The treatment of this income will depend on whether A is a financial trader, and on the type of income.
- A바카라 사이트™s finance charge of 3 is treated as interest for loan relationships purposes.
Further points to note
- If the securities are overseas equities, A바카라 사이트™s entitlement to DTR is based on the tax deducted from the deemed manufactured overseas dividend received, not on the tax deducted from the real dividend (CFM46390).
- This transaction corresponds to the creditor repo example at CFM46320 (where C is a company).
- A바카라 사이트™s tax treatment would be the same if, instead of repurchasing the securities from C, A purchased them from another person (바카라 사이트˜D바카라 사이트™). In such a transaction both C and D (if they are companies) would have creditor quasi-repos. CFM46330 gives examples of creditor quasi-repos.